Monday, August 12th, 2019
What is the doctrine of frustration?
“Frustration of a contract takes place where there supervenes an event (without default of either party and for which the contract makes no sufficient provision) which so significantly changes the nature (not merely the expense or onerousness) of the outstanding contractual rights and/or obligations from what the parties could reasonably have contemplated at the time of its execution that it would be unjust to hold them to the literal sense of its stipulations in the new circumstances: in such case, the law declares both parties to be discharged from further performance.”
When frustration occurs, the contract is discharged and all included parties are released from further obligations. This can only happen when an event that is deemed as unanticipated at the time of the contract’s formation, supervenes the nature of the contract.
The traditional test to stop people from exploiting this doctrine, which was accepted by the House of Lords in Davis Contractors Ltd v Fareham U.D.C. , applies where a supervening event or circumstance makes the performance of the contract radically different to the original obligation the parties contracted for. This is important, it does not make the contract impossible to fulfill, just very different from the original contract that had been established.
Why has it been hitting the news?
The latest high profile case of lease frustration has been involving the High Court’s decision in Canary Wharf Ltd v European Medicines Agency (EMA) . Although the UK has not yet left the EU, the English court has had to consider for the first time whether Brexit could result in the frustration of a commercial agreement.
EMA’s main argument for frustration in this case was that of supervening illegality. That, upon Brexit, it would no longer have the capacity as a matter of EU law to continue to use the Canary Wharf premises or perform under the lease.
Speak to our expert team if you’d like to discuss lease frustrations further. We have a wealth of experience in regards to both private and commercial leases – please see our Property Department details and our Commercial Property details.